Location, location, location – why a London base is good for your business
When it comes to business sales, London companies are more than twice as likely to be acquired as regional competitors. Jonathan Dunn of BCMS explains how to approach a potential sale.
Every week across London, more than 50 businesses are bought and sold on average, as acquisitive corporations and investors seek out innovative fast-growing companies to add to their portfolio.
It’s not hard to see why. The capital is packed with head offices – offering a readymade top-notch client base to SME suppliers – while London also boasts the most diverse workforce in the UK. These two factors make international expansion much easier for ambitious entrepreneurs, and means London-based businesses are well-placed to grow faster.
Of course, many small businesses become acquisition targets as they become more visible, which may partly explain why London companies are more than twice as likely to be acquired as their South East England counterparts.
This means that acquirers aren’t waiting until someone is ready to retire and cash out. They are increasingly approaching London business owners with unsolicited offers to buy them out.
Most owners don’t know how to react when they get approached. Some are flattered, others are curious, while a good few grow suspicious.
However, this is not a situation where they should go it alone. The initial bid is unlikely to be the best price, and the demands on time of pursuing negotiations can distract from running the business.
As Sam Pemberton, founder of video captioning firm Softel who sold to US giant Belden Inc, said: “We had been approached by a number of companies interested in purchasing Softel. We wanted to make sure we got maximum value and avoided any traps or pitfalls in the process.”
SELLING UP WHEN NOT FOR SALE
The key to securing a deal is to understand the motives of the potential buyer. An industry player acquires for specific reasons – further growth, extend capabilities, defend core markets, or develop new cross-selling opportunities – known as synergies.
But in certain industries, owners are increasingly approached by private equity groups, with offers to fund growth plans in return for all or part of the equity. This is especially a well-trodden path in the London food service market, where small chains offering new concepts can be scaled up and rolled out nationally.
Similarly, cutting edge technology firms are repeatedly approached with unsolicited offers from venture capital and private equity providers, with London firms accounting for a third of UK tech investments.
With London SMEs receiving so much uninvited attention, what should business owners do if they are approached?
Level the playing field
Most business owners have never sold a company before, whereas the acquirer is likely to be very experienced. A professional mergers & acquisitions advisor can help you assess the offer, go through the small print, and fight your corner to get the best price and terms.
There will be dozens of possible buyers willing to put in counter-bids, if you can reach them quickly. These days, many are based overseas. One in four BCMS clients sells to an acquirer outside the UK, so it’s important to search globally, as these buyers often pay more for the privilege of accessing the desirable London market.
Assess all options
You may feel the need to get your business independently valued first. However, traditional accounts-based valuations often focus on past performance, rather than future potential. Remember, this is about what your business is worth to the acquirer, so understanding buyer motives is critical.
Get the right support
If you want to go ahead with the unsolicited offer, you could use your accountant to facilitate a deal. But if the initial offers are too low and you need to drive up the price via a competitive process, choose a sell-side advisor who will find other bidders, while keeping you – not the buyer – in control of the negotiation process.